Knight Capital confirmed on Monday that it struck a rescue deal with a group of investors, staving off collapse after a recent trading mishap, even as the New York Stock Exchange temporarily revoked its market making responsibilities.
In a regulatory filing, Knight Capital said several investors agreed to purchase $400 million of the brokerage firm's preferred stock. The investment could provide the investors with more than 260 million new shares of the firm.
The deal will hugely dilute existing shareholders of the company. In pre-market trading, shares of Knight Capital were down 34 percent.
The filing did not name the backers â€" or the exact terms of the deal. But people with direct knowledge of the matter said on Sunday that the investor group included TD Ameritrade and the Blackstone Group, Getco, and Stifel, Nicolaus & Company. The securities will afford the investors the right to buy new shares in Knight at roughly $1.50 a piece, according to the p eople.
The deal will hugely dilute existing shareholders of the company. In pre-market trading, shares of Knight Capital were down 34 percent.
The lifeline was assembled in the wake of Knight Capital disclosing a $440 million trading loss. The loss stemmed from a technology error that occurred on Wednesday when the firm unveiled new trading software, a glitch that generated erroneous orders to buy shares of major stocks. The orders affected the shares of 148 companies, including Ford Motor, RadioShack and American Airlines, sending the markets into upheaval.
Knight said it reached the deal on Sunday, and it expected to close the transaction on Monday.
But on Monday, the New York Stock Exchange said it “temporarily†reassigned the firm's market making responsibilities for more than 600 securities to Getco, a high-speed trading firms.
The move, the exchange said in a statement on Monday, was a stop gap measure needed until the investor deal wa s completed. Once the recapitalization plan is complete, Knight will resume its duties.
“We believe this interim transition is in the best interests of investors, our listed issuers, market stability and efficiency, as well as Knight, as the firm finalizes its equity financing transaction,†aid Larry Leibowitz, Chief Operating Officer of NYSE Euronext., said in the statement.
